Will investing $20,000 in BigBear.ai make you a millionaire?

When investors think of artificial intelligence (AI) stocks, these are the names that come to mind. Palantir Technologies (PLTR -1.27%) and C3.ai (A.I. -1.97%) It comes to mind normally. And you should. These giant companies have been around for a while and are largely ushering in the AI ​​era.Smaller, younger players, e.g. BigBear.ai (BBAI -3.38%),did not do it.

But as veteran investors can attest, the younger and smaller a promising company is, the closer it is to being “on the ground floor.”

This is an axiom that raises questions for investors considering new positions in BigBear.ai at this time. In other words, if he invests $20,000 in this stock now, could it grow to be worth $1 million (or more) in the future?

The answer is yes. It's not out of the realm of possibility. However, this comes with a big footnote.

BigBear.ai is similar but different

For those not familiar, BigBear.ai is similar to its larger rivals C3.ai and Palantir Technologies. All three companies offer platforms that help businesses and institutions turn large amounts of digital data into actionable information. This science may be known by the more common name of artificial intelligence.

However, BigBear.ai is distinctly different from other names in the AI ​​business in several ways.

One reason for this is its size (or lack thereof, in fact). BigBear.ai did just $155 million worth of business last year. That's a pittance compared to Palantir's $2.2 billion, and much smaller than C3.ai's reported revenue of about $300 million over the past four quarters. Similarly, C3.ai and Palantir Sports have market caps of $3.5 billion and $55 billion, respectively, while BigBear.ai is smaller, with a market cap of only about $500 million.

However, there are advantages to being small. That is his second important characteristic of this company. Smaller companies tend to be more agile, move faster, and have a greater ability to meet the specialized needs of potential customers. As an example, BigBear.ai announced technology late last year that makes its computer-aided engineering software AutoCAD more powerful by allowing it to simulate how a particular design would work if implemented. .

Investing in BigBear.ai involves risk

While there are obvious benefits to agility, there are also benefits to BigBear.ai's scale. I don't enjoy.

In some respects, the company's product lineup is so narrowly focused that it may not have much value outside of the company's core capabilities. These are government/defense, manufacturing and warehousing, and healthcare management solutions. That's why the company recently chose to enter the vision AI market (facial recognition, baggage screening, etc.) by acquiring a specialized company called Pangiam for his $70 million, rather than developing a new platform. . With larger AI facilities, something similar could have been built at a lower cost.

Similarly, the presence of large corporations can make prospective customers hesitant to do business with smaller AI solution providers. Smaller companies also get less consistent results. Supporting this idea is the fact that the top line didn't grow at all last year. While sales are expected to grow at more than 30% this year, analysts expect BigBear.ai's sales growth to slow to less than 13% next year.

BBAI Revenue (Quarterly) Data by YCharts

This kind of inconsistency can make it difficult for shareholders to hang on to the stock if the foreseeable future of the underlying company starts to look a little shaky.

Nevertheless, there is reason for cautious expectations here.

Weigh the true risks of BigBear stock against reasonable returns

As much as AI has emerged in the last few years, we've only scratched the surface of its potential. Precedence Research believes the global AI industry will grow at an annual rate of 19% until 2032.

If we talk only about the software part of the artificial intelligence market (where BigBear.ai operates), the numbers are even more promising. Precedence expects the business to grow at an average annual rate of 23% through his 2032. If BigBear.ai's focused solutions end up being something agencies are willing to pay for once they understand what they need, this is the small company. You could end up reaping more than your fair share of this growth.

But would you turn $20,000 worth of BigBear.ai stock into more than $1 million? I can't say for sure, but that's an exaggeration. You will need at least a 5,000% return on your investment.

Oh, it's happened before, but only with pioneering companies like: apple and Amazon They were able to execute their great ideas for years before serious competitors entered the picture. Both of these monster-sized companies operate businesses with no revenue caps on the distant horizon. This is in contrast to the artificial intelligence industry, which has clear scale limits, even if it takes years to reach those limits. BigBear.ai also already has bigger and, in some ways, better competition. These rivals simply aren't going to allow this small company to gain market share without eventually rebounding.

In other words, if you have an extra $20,000 lying around and really want to turn it into a seven-figure fortune, there are lower-risk options that are better to take on.

Still, if you hold a small portion of your overall portfolio's value and are prepared to take reasonable risks, you can certainly do worse than BigBear.ai.